Ethiopia, one of the world’s poorest countries, is currently struggling to deal with the devastating effects of a severe drought. Köhler’s two-day visit provided him with an opportunity to witness firsthand the economic and social challenges that Ethiopians face and to discuss the economic situation with a wide range of people in government and in civil society.

In his meetings with Prime Minister Meles Zenawi, Finance Minister Sufian Ahmed, and the country’s economic team, Köhler welcomed the government’s decisive actions to deal with the immediate effects of drought and its decision to adopt structural and lasting measures—such as agricultural modernization and investment in key economic and social infrastructure—to ensure food security in the future. He also underscored the international community’s critical role in helping Ethiopia contend with this difficult situation.

Fighting poverty

The government of Ethiopia is making considerable progress in tackling poverty, aided by an increasing share of government spending earmarked for the social sectors and poverty reduction. Efforts to reduce poverty are also being supported by the IMF through a three-year, $140 million loan under its concessional lending facility—the Poverty Reduction and Growth Facility (PRGF). Over the past three years, poverty-reducing spending has more than doubled as a percentage of GDP, rising from 8 percent in 1999/2000 to close to 18 percent in 2002/03. In his discussions with Prime Minister Meles and his economic team, Köhler proposed measures that could, with the assistance of its development partners, help Ethiopia make progress toward the UN Millennium Development Goals and in particular substantially reduce the prevailing level of poverty. They agreed on the need to ensure high sustainable agricultural growth rates and to foster the role of the private sector.

Economic growth, debt sustainability

Ethiopia’s comprehensive strategy for achieving sustainable development and reducing poverty aims at achieving a 7 percent real GDP growth rate, consistent with the target set under the New Partnership for Africa’s Development initiative. This ambitious growth rate—or perhaps even a higher one—is achievable, Köhler told the press, “provided the pace of structural reforms is accelerated, financial sector reform deepened, and the climate for private, domestic, and foreign investment greatly enhanced to contribute to job and income creation.”

In November 2001, Ethiopia reached the decision point under the enhanced initiative for Heavily Indebted Poor Countries (HIPC), with debt relief estimated at $1.9 billion. Köhler said that he sees “a good prospect that Ethiopia will reach the HIPC completion point in early 2004 and thereby contribute to debt sustainability.” In this context, he urged donors to provide much needed assistance to Ethiopia, with new assistance given, as far as possible, on grant terms.